Eurozone Retail Sales Dip In February

Eurozone retail sales declined again in February after a moderate improvement in January as record unemployment, high inflation and severe austerity measures forced consumers to cut back spending.

Retail sales fell 0.1 percent month-on-month in February, following a 1.1 percent rise in January. Sales have now fallen in five of the past six months. Nonetheless, the rate of decline was marginally better than the expected 0.2 percent drop.

February's dip in retail sales renews suspicion that consumers across the Eurozone remain reluctant to spend and that January's rise in sales was due significantly to pressurized consumers looking to take advantage of the clearance sales, IHS Global Insight Chief U.K. and European Economist Howard Archer said.

On a yearly basis, retail sales fell 2.1 percent, while economists expected sales to fall 1.1 percent, at the same pace as in the previous month.

"The ongoing weakness in Eurozone retail sales reinforces suspicion that consumer spending contracted again in the first quarter of 2012 contributing to an overall GDP drop which would put the Eurozone back into recession," Archer said.

The prospects for overall consumer spending in the Eurozone look worrying in the near term at least, he added. During the fourth quarter, household consumption fell 0.4 percent, when the economy suffered a 0.3 percent contraction.

The Eurozone unemployment rate climbed to a new record high of 10.8 percent in February amid debt crisis and subsequent austerity efforts in many European countries to restore their public finances.

High unemployment coupled with austerity cuts have crippled consumers' purchasing power. Moreover, hopes that purchasing power will be lifted by retreating inflation are currently being diluted by elevated oil prices, Archer noted.

However, tensions surrounding the crisis have abated somewhat recently and this was reflected in consumers' expectations about the general economic situation. The European Commission has reported an increase in consumer confidence in March, but this was still low compared to historical standards.

Eurostat said that retail sales in Germany dropped 1.1 percent month-on-month in February, marking a second consecutive fall. This was, however, offset by a 1.2 percent gain in France. Sales increased 0.7 percent in Spain, despite record high unemployment.

The European Central Bank is set to announce its policy decision at 7.45 am ET. Economists widely expect policymakers to maintain the rate at 1.00 percent.